Copyright © 2014 by Sports Career Consulting, LLC Lesson 3.3 – The Financial Structure of Entertainment Business

Entertainment Business Revenue Streams Similar to sports products in that both products can be developed into merchandise, used for promotion, and create profit through sales of ancillary products, licensing, and royalties Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles

Ancillary products are products related to or created from the core product Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles

LESSON 3.3 Intro to Basic SEM Principles A single blockbuster Hollywood film can generate a number of ancillary products:  Videos, DVDs, Electronic games  Cable TV and Pay-Per-View Rights  Licensed Merchandise  Film can be the basis for a video game, TV series, book, or apparel (toys, games, apparel, etc) The sale of those ancillary products makes a profit for the film creators in the form of sales, royalties and licensing fees Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.3 Intro to Basic SEM Principles Consider the Star Wars franchise of films Copyright © 2014 by Sports Career Consulting, LLC Videos, DVDs, CDs & Video Games

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Licensed Merchandise and Apparel

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Licensed Merchandise and Apparel

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Licensed Merchandise and Apparel

Royalties are payments made to the owner of copyrighted work for use of their material Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure

Songwriters like Bob Dylan and Paul McCartney receive compensation when other artists “cover” (record or perform their own version) of the original song Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles

LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC Rolling Stone magazine reported in that the show Glee pays an average of $15,000 to $30,000 per song in licensing fees, with the biggest names getting more

LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Also according to a New York Times report, Pandora and Sirius XM paid out nearly $656 million in performance royalties last year Copyright © 2014 by Sports Career Consulting, LLC

Entertainment Business Revenue Streams A typical hollywood marketing strategy includes planning the merchandising and product tie-ins before planning the casting and film production schedule Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles

Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Product Placement Hollywood Marketing Strategy Increasingly, studios plan the merchandising, products, DVD and electronic games and toys they will tie in with their proposed film before the actors and other technical staff are determined Movies are seen as revenue generators, artistic statement is secondary

Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles If a film can be developed into a franchise (a series of films which will tie together), it will be!

Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Top film franchises in movie history: 1.Harry Potter 8 movies = $7.7 billion in worldwide box office sales 2. James Bond 3. Marvel’s Cinematic Universe 4. Star Wars 5. The Lord of Rings

Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Film producers plan original merchandise tied to the film and also product placement of existing products within the film.

Product placement is an advertising approach in which commercial products and services are used within the contest of certain media where the presence of a particular brand is the result of an economic exchange Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles

Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Commonly referred to as product “tie-ins” or product integration When the featured product does not pay for the exposure, it is referred to as a product plug

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Not all product appearances are PAID

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Of the 40 top box-office films in the US Box Office in 2011, nearly 43 percent featured Apple product placements, including iPads, MacBooks, and iMacs despite the fact that Apple allegedly never pays for product placement.

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Hit AMC series Mad Men featured Koss brand headphones in a 2013 episode even though the company had no idea it was written into the script. Koss executives revealed they had no input into the storyline, and only found out after watching the show along with the other 3.4 million Americans who tuned in to watch that particular episode.

LESSON 3.3 Intro to Basic SEM Principles Product placement is one of the fastest growing advertising mediums in the entertainment industry Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.3 Intro to Basic SEM Principles Global product placement spending increased 11.7% to $8.25 billion in 2012 Copyright © 2014 by Sports Career Consulting, LLC Burger King in a video game

LESSON 3.3 Intro to Basic SEM Principles In-game product placements generated $77.7 million globally in 2006 and are expected to top $1 billion in worldwide in-game advertising spending by 2014 Copyright © 2014 by Sports Career Consulting, LLC Worldwide In-Game Advertising Expenditures (in Millions of US Dollars) 1, Bil

LESSON 3.3 Intro to Basic SEM Principles After the commercial success of his hit “Gangnam Style”, PSY was reportedly paid $1 million for a three second spot in his follow up video for the song, “Gentleman”, by a video game developer. Several other brands are also featured in the video. Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.3 Intro to Basic SEM Principles “Man of Steel,” the highly anticipated reboot of the Superman franchise, earned $160-million from product placements from more than 100 brands, shattering the record held by “James Bond Skyfall” which generated a then-record $45 million in endorsements in Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Product placement is presenting itself in new, more aggressive forms “Brands are tripling their revenue (just) because of a mention in a Jay-Z song, so we go after the companies and partner them with the demographic. If you hear an artist talking about his new Fila sneakers, you’re going to think about it when you go shopping.”

LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC The selfie 2014 Oscars host Ellen DeGeneres took during the show with a Samsung mobile device sparked a lot of conversation and it was later revealed that, as part of its sponsorship and ad pact for the Oscars with ABC, Samsung previously negotiated to have its Galaxy smartphone integrated into the show

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC In celebration of the 25th anniversary of the Discovery Channel’s wildly successful “Shark Week” program, Volkswagen created a "Volkswagen Beetle Shark Observation Cage" to replace the standard shark cage used in prior airings of the show

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Even authors and publishing companies engage in product placement. For example, auto brands make heavy appearances in the Twilight books (Volvo is mentioned 16 times in the original book and six times in Eclipse). Entertainment Business Financial Structure

LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? The decision to feature Reese's Pieces in ET catapulted the product- placement craft into the Hollywood mainstream. Sales of the candy subsequently increased 80%. Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? Etch A Sketch, Mr. Potato Head and Slinky were toys in the popular animated movie. Etch A Sketch sales increased 4,500 percent; Mr. Potato Head sales increased 800 percent; Slinky, out of business for 10 years, made a comeback after getting deluged with 20,000 orders! Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? A Billabong brand jacket featured in the second Twilight film ignited a buying frenzy. The brand quickly sold out of the jacket and it could later be found on eBay going for many times its retail price. Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? USA Today reported that, when Jaguar automobiles figured prominently in the story line of a 2012 episode of “Mad Men”, the brand experienced a 96.27% lift in "content consumption" (how often people were talking about the brand on digital devices), despite the fact that the brand wasn’t portrayed in a positive light. Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? That’s not to say product placement isn’t a risky endeavor for both the brand and the film producer. Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.3 Intro to Basic SEM Principles Product Placement Reverse Product Placement Reverse product placement occurs when real life products are developed that match products featured in a fictional context

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Reverse Product Placement In 2012, Staples began selling “Dunder Mifflin” branded copy paper products (licensing agreement with NBC) statement from the company: suggested revenue generated by sales was “two times what we expected.”

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Reverse Product Placement Willy Wonka - the “greatest example of reverse product placement of all time” -in commemoration of the film’s 40th anniversary -still make extensive use of the "golden ticket" for marketing opportunities

LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Reverse Product Placement A deal was announced between Frito-Lay and Wal- Mart in which 1.5 million packages of “Cheesy Poofs”, the snack made famous in Comedy Central’s cartoon show South Park, would be available exclusively at Wal- Mart stores to celebrate the show’s 15th season